We invest with making higher returns in mind. But the markets are volatile right now and you’re wondering what’s your next move. It’s a tough decision to make and can weigh on you emotionally since your hard-earned savings is on the line.
It’s either:
Wait for the investments to go up then sell-off immediately before it declines again
Hold on for the long term
Withdraw your investments and chalk up your losses to poor luck
If you’re planning to do (1) Wait for the investments to go up then sell-off immediately before it declines again; boy, do I have news for you.
It’s called timing the market and according to experts and not only is it incredibly stressful, it just doesn’t work.
Why doesn’t timing the market work?
Life can be predictable sometimes. We can tell when it’s gonna rain or whether your boss will be in a good mood (maybe). But the telltale signs of how the market performs are not as straightforward as gray clouds or your boss’ cheesy jokes in the morning.
In fact, there are none at all. Here’s why:
1. Timing the market is not a practical strategy
Timing the market essentially needs you, the investor, to:
sell your investments before the drop
buy back into the market before it recovers
It sounds pretty simple, right?
Unfortunately for us 9-5ers, tracking the market’s performance as accurately as possible is a full-time job. Not only do you need to constantly research the market; it takes a lot of mental focus and emotional strength.
Pair that with the market’s volatility, it may be too much of a burden for small investors with full-time jobs.
Markets don’t necessarily move logically and are not always representative of economic conditions. Even in poor economic conditions, markets don’t necessarily decline. A clear example would be the markets’ performance during 2020. In spite of the worldwide lockdown due to COVID-19, markets continued climbing.
To sum it up: it is difficult to predict market movements accurately and pull of timing of the market consistently.
2. You lose out on potentially higher returns
Let’s look back at your options for investing:
Wait for the investments to go up then sell-off immediately before it declines again
Hold on for the long term
Withdraw your investments and chalk up your losses to poor luck
So what’s the next best option?
It’s 2: Hold on for the long term aka time in the market.
Historically speaking, the market as a whole trends upwards in the long run. The longer you are in the market, the likelier you are to see a healthier return. Since not even experts know when the market’s best days will be, the only way to guarantee the best returns is to stay invested – even through the lows.
When you try to time the market, you also lose out on compounding your returns in the long run! In any case where you withdraw your investments, you miss out on yielding returns during the market’s best days.
What to do instead of timing the market
The first step is to determine your risk profile/appetite. This way you can invest based on what you can handle.
>>> How much risk can you take? Find out in Understanding Your Risk Appetite
We also help you determine your risk appetite with our Suitability Assessment Test just for Versa Invest. With our test, you can choose the right portfolio that matches your risk profile. With Versa Invest, we offer four portfolio options: Moderate, Growth, REITs, and Gold. Not only can you access premium funds, your investments will be managed by global fund managers who are experts in the field.
The second step is to continue investing. You can set aside your savings in less volatile investments. Not only that, opt to diversify your investments to reduce your risk.
By investing long term, you can reap the benefits of compounding returns as well as holding on during the market’s best days.
